Determination of the hedge ratio in the two-state model

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Reference no: EM131523285

Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $92 (down state).

1. What would be the hedge ratio for each of the following exercise prices: 135, 122, 112, 92? (Round your answers to 3 decimal places.)

Exercise Price Hedge Ratio

135

122

112

Reference no: EM131523285

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